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G.R. No.

L-5377 December 29, 1954


MARIA CLARA PIROVANA ET AL., plaintiffs-appellees,
vs.
THE DE LA RAMA STEAMSHIP CO., defendant-appellant.
Facts: Plaintiffs herein are the minor children of the late Enrico Pirovano
represented by their mother and judicial guardian Estefania R. Pirovano. They
seek to enforce certain resolutions adopted by the Board of Directors and
stockholders of the defendant company giving to said minor children of the
proceeds of the insurance policies taken on the life of their deceased father
Enrico Pirovano with the company as beneficiary. Defendant is a corporation
duly organized in accordance with law with an authorized capital of
P500,000, divided into 5,000 shares, with a par value of P100 each share.
Enrico Pirovano became the president of the defendant company and under
his management the company grew and progressed until it became a multimillion corporation by the time Pirovano was executed by the Japanese
during the occupation.
In the meantime, Don Esteban de la Rama, who practically owned and
controlled the stock of the defendant corporation, distributed his
shareholding among his five daughters. One of the daughters was married to
Enrico Pirovano. Meanwhile, a grant was made in favour of the Pirovano
children which constitutes the proceeds of the insurance policies taken on his
life by the defendant company. Out of the proceeds of these policies the sum
of P400,000 be set aside for the minor children of the deceased, said sum of
money to be convertible into 4,000 shares of the stock of the Company, at
par, or 1,000 shares for each child. However, members of the family and Don
Esteban did not realize that they would be actually giving to the Pirovano
children more than what they intended to give. If the Pirovano children would
be given shares of stock in lieu of the amount to be donated, the voting
strength of the five daughters of Don Esteban in the company would be
adversely affected in the sense that Mrs. Pirovano would have a voting power
twice as much as that of her sisters.
The Board of Directors of the De la Rama company, as a consequence of the
change of attitude of Don Esteban, adopted a resolution changing the form
of the donation to the Pirovano children from a donation of 4,000 shares of
stock as originally planned into a renunciation in favor of the children of all
the company's "right, title, and interest as beneficiary in and to the proceeds
of the abovementioned life insurance policies", subject to the express
condition that said proceeds should be retained by the company as a loan.
On March 8, 1951, at a stockholders' meeting convened and majority of the
stockholders' voted to revoke the resolution approving the donation to the
Pirovano children.

Issues: 1. Whether or the donation has been perfected such that the
corporation can no longer rescind it even if it wanted to.
2. Can defendant corporation give by way of donation the proceeds of said
insurance policies to the minor children of the late Enrico Pirovano under the
law or its articles of corporation, or is that donation an ultra vires act?
Ruling: 1. Yes. The donation was a corporate act carried out by the
corporation not only with the sanction of its Board of Directors but also of its
stockholders. It is evident that the donation has reached the stage of
perfection which is valid and binding upon the corporation and as such
cannot be rescinded unless there is exists legal grounds for doing so. In this
case, we see none. The two reasons given for the rescission of said donation
in the resolution of the corporation adopted on March 8, 1951, to wit: that
the corporation failed to comply with the conditions and that in the opinion of
the Securities and Exchange Commission said donation is ultra vires, are not,
in our opinion, valid and legal as to justify the rescission of a perfected
donation. These reasons cannot be invoked by the corporation to rescind or
set at naught the donation, and the only way by which this can be done is to
show that the donee has been in default, or that the donation has not been
validly executed, or is illegal or ultra vires, and such is not the case as we will
see hereafter. We therefore declare that the resolution approved by the
stockholders of the defendant corporation on March 8, 1951 did not and
cannot have the effect of nullifying the donation in question.
2. We find that the corporation was given broad and almost unlimited powers
to carry out the purposes for which it was organized among them, (1) "To
invest and deal with the moneys of the company not immediately required,
in such manner as from time to time may be determined" and, (2) "to aid in
any other manner any person, association, or corporation of which any
obligation or in which any interest is held by this corporation or in the affairs
or prosperity of which this corporation has a lawful interest."
The world deal is broad enough to include any manner of disposition, and
refers to moneys not immediately required by the corporation, and such
disposition may be made in such manner as from time to time may be
determined by the corporations. Under the second broad power, that is, to
aid in any other manner any person in the affairs and prosperity of whom the
corporation has a lawful interest, the record of this case is replete with
instances which clearly show that the corporation knew well its scope and
meaning so much so that, with the exception of the instant case, no one has
lifted a finger to dispute their validity.
It may perhaps be argued that the donation given to the children of the late
Enrico Pirovano is so large and disproportionate that it can hardly be
considered a pension of gratuity that can be placed on a par with the
instances above mentioned, but this argument overlooks one consideration:

the gratuity here given was not merely motivated by pure liberality or act of
generosity, but by a deep sense of recognition of the valuable services
rendered by the late Enrico Pirovano which had immensely contributed to the
growth of the corporation to the extent that from its humble capitalization it
blossomed into a multi-million corporation that it is today. Said donation was
given not only because the company was so indebted to him that it saw fit
and proper to make provisions for his children, but it did so out of a sense of
gratitude. Another is that Enrico Pirovano was not only a high official of the
company but was at the same time a member of the De la Rama family, and
the recipients of the donation are the grandchildren of Don Esteban de la
Rama. This we, may say, is the motivating root cause behind the grant of this
bounty.
We do not see much difference between this definition of gratuity and a
remunerative donation contemplated in the Civil Code. In essence they are
the same. A distinction should be made between corporate acts or contracts
which are illegal and those which are merely ultra vires. The former
contemplates the doing of an act which is contrary to law, morals, or public
policy or public duty, and are, like similar transactions between the
individuals void. On the other hand, an ultra vires act is one outside the
scope of the power conferred by the legislature, and although the term has
been used indiscriminately, it is properly distinguishable from acts which are
illegal, in excess or abuse of power, or executed in an unauthorized manner,
or acts within corporate powers but outside the authority of particular
officers or agents.
Since it is not contended that the donation under consideration is illegal we
cannot but logically conclude, that said donation, even if ultra vires in the
supposition we have adverted to, is not void, and if voidable its infirmity has
been cured by ratification and subsequent acts of the defendant corporation.
The defendant corporation, therefore, is now prevented or estopped from
contesting the validity of the donation. To allow the corporation to undo what
it has done would only be most unfair but would contravene the well-settled
doctrine that the defense of ultra vires cannot be set up or availed of in
completed transactions.